Concerns Over Increasing weaponization of Trade

Syllabus: GS2/ International Relations

Context

• The External Affairs Minister of India, S. Jaishankar highlighted that rising globalization along with trade weaponization has  resulted in job losses and dissatisfaction in many societies.

What is trade weaponization?

• Trade weaponization refers to the strategic use of trade policies and economic measures by countries to exert political or economic pressure on others. 
• Instead of trade being purely an economic activity aimed at mutual benefit, it becomes a tool of influence, coercion, or retaliation.

Tools of trade weaponization

• Tariffs and Sanctions: Countries impose tariffs or sanctions on imports from a particular country to hurt its economy.
  • Example: US-China trade war
• Export Controls: Restrictions on exports of critical technologies or materials to a nation.
  • In 2020, the US government started imposing stricter export controls on China to limit its access to advanced semiconductor technology. 
• Supply Chain Disruptions: Manipulating supply chains for critical goods, like rare earth metals or energy resources, to gain leverage in political disputes.
• Currency Manipulation: It boosts a nation’s export competitiveness while hurting the importing country’s economy.

Challenges of trade weaponization

• Increased Uncertainty: The imposition of tariffs and sanctions creates uncertainty in international markets, making it difficult for businesses to plan for the future.
• Loss of Export Markets: Retaliatory tariffs restrict access to key export markets, negatively affecting domestic industries that rely on international sales.
• Strained Diplomatic Relations: Trade weaponization leads to heightened tensions between nations, complicating diplomatic relations.
• Erosion of Multilateralism: The rise of unilateral trade measures undermines established international trade norms and institutions, such as the World Trade Organization (WTO), leading to a fragmented global trading system.
• Disproportionate Effects: Protectionist measures disproportionately affect low-income workers and communities, leading to job losses in industries exposed to international competition.

Steps taken against trade weaponization

• Regional Trade Agreements: Countries are forming or revitalizing regional trade agreements (RTAs) to enhance cooperation and reduce reliance on major economies.
  • Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP),
  • Regional Comprehensive Economic Partnership (RCEP) etc.
• Mineral Security Partnership (MSP) to diversify and stabilize global supply chains of Critical Minerals.
• Reform of the WTO: Ongoing discussions to reform the World Trade Organization (WTO) aim to enhance its dispute resolution mechanisms and address the challenges posed by unilateral trade actions.
• Indo-Pacific Economic Framework (IPEF): It serves as a countermeasure to economic coercion by countries that use trade as a tool of influence, promoting a more equitable and rules-based trading system.

Concluding remarks

• The challenges arising from the weaponization of trade are complex and multifaceted, affecting not only national economies but also the global trading system and international relations.
• There is further need for encouraging transparency, enhanced communication, and conflict resolution mechanisms to promote a stable and equitable international trading system.

Source: IE